ICI India Ltd., Kolkata V. DCIT, CIR-10, KOLKATA, Kolkata

ITA 850/KOL/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100134 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1996-1997
• Appeal Filed On: 10-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMARM
• Assessee Lawyers: R N BAJORIA SENIOR
• Keywords: Capital asset; Depreciation; Rectification of order; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 2(14); 142(1); 80HHC; 234B; 37(1); 32; 147; 54; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 850 & 1021 / KOL / 2007 ASSESSMENT YEAR :1996-97 ICI INDIA LTD. 8B MIDDLETON STREET, KOLKATA 700 071 [ PAN NO.AAACI 6297 A ] DCIT, CIRCLE-10, 3 GOVT. PLACE (WEST) KOLKATA V/S . V/S . DCIT, CIRCLE-10, 3 GOVT. PLACE (WEST), KOLKATA M/S ICI (INDIA) LTD. 34, CHOWRINGHEE ROAD, KOLKATA-71 /APPELLANT .. / RESPONDENT ITA NO. 2048 & 2355/KOL/2005 ASSESSMENT YEAR: 1996-97 ICI INDIA LTD. 34, CHOWRINGHEE ROAD, , KOLKATA 700 071 ACIT, CIRCLE-10, 3 GOVT. PLACE (WEST) KOLKATA V/S . V/S . DCIT, CIRCLE-10, AYAKAR BHAVAN, P-7, CHOWRINGHEE SQUARE, KOLKATA- 700 069 M/S ICI (INDIA) LTD. 34, CHOWRINGHEE ROAD, KOLKATA-71 /APPELLANT .. / RESPONDENT ITA NO. 487 & 507/KOL/2006 ASSESSMENT YEAR: 1998-99 ICI INDIA LTD. 34, CHOWRINGHEE ROAD, KOLKATA 700 071 ACIT, CIRCLE-10, 3 GOVT. PLACE (WEST) KOLKATA V/S . V/S . DCIT, CIRCLE-10, 3 GOVT. PLACE (WEST), KOLKATA M/S ICI (INDIA) LTD. 34, CHOWRINGHEE ROAD, KOLKATA-71 ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 2 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI R.N.BAJORIA, SENIOR COUNSEL /BY REVENUE SHRI NIRAJ KUMARM, CIT-DR /DATE OF HEARING 15-10-2015 ! /DATE OF PRONOUNCEMENT 27-11-2015 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS)-X, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 1996-97 AND 1998-99 RESP ECTIVELY. 2. THESE BUNCH OF APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAIN TO THE ISSUES OF THE SAME ASSESSEE FOR THE DIFFERENT A SSESSMENT YEAR, THEREFORE FOR THE SAKE OF CONVENIENCE, WE HEARD ALL THESE APP EALS TOGETHER AND DISPOSING THE ISSUES INVOLVED BY THIS COMMON ORDER. LET US TAKE THE ASSESSEES APPEAL IN ITA NO. 850/KO L/2007 A.Y. 1996-97 3. THE FIRST ISSUE RAISED BY ASSESSEE IN THIS APPEA L IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO FOR THE LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT WHICH HAS BEEN CRYSTALLIZED ALTHOUGH HAS NOT FALLEN DUE FOR PAYMENT AS ON 31 ST MARCH, 1996. 4. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR AS SESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT BY AN AMOUNT OF 4.90 CRORES TOWARDS PROVISION FOR LEAVE SALARY. ON QUESTION RAISED BY ASSESSING OFFIC ER ON THE ALLOWABILTY OF ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 3 SAID PROVISION FOR LEAVE SALARY AS DEDUCTION, THE A SSESSEE SUBMITTED THAT LIABILITY ON ACCOUNT OF LEAVE SALARY HAS BEEN WORKE D OUT ON THE BASIS OF LEAVE LYING TO THE CREDIT OF EACH MEMBER OF THE STAFF AS ON 31 ST MARCH, 1996. ASSESSEE FURTHER SUBMITTED THAT THIS AMOUNT HAS NOT FALLEN DUE FOR PAYMENT AS ON 31 ST MARCH, 1996 BUT THE LIABILITY FOR THE SAME, HAS BE EN CRYSTALLIZED. SO UNDER MERCANTILE SYSTEM OF ACCOUNTING, IT SHOULD BE CONSIDERED AS ACCRUED LIABILITY AND SHOULD BE ALLOWED AS DEDUCTABLE EXPEN DITURE. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE AND TREATED THE S AME AS CONTINGENT LIABILITY AS IT HAS NOT ACCRUED DURING THE PREVIOUS YEAR. IT MERELY REPRESENTS THE PROVISION OF LIABILITY, THEREFORE THE SAME WAS DISA LLOWED. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- THE APPELLANT MADE A CLAIM TOWARDS LIABILITY ON AC COUNT OF ENCASHMENT OF LEAVE. THE CLAIM REPRESENTS AN AMOUNT QUANTIFIED ON THE BASIS OF LEAVE LYING AT CREDIT OF THE STAFF MEMBER. THE AMOU NT HAS NOT FALLEN DUE FOR PAYMENT AS ON 31.3.96. FURTHER, IT IS NOT A CRY STALLIZED LIABILITY AND IS IN THE NATURE OF A PROVISION TO MEET THE CONTINGENT LIABILITY. THE AO IS CORRECT AS PER LAW IN DISALLOWING THE APPELLANTS C LAIM FOR DEDUCTION. THE AO'S ACTION IS UPHELD. THIS GROUND OF APPEAL FAILS AND IS REJECTED. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. SHRI R.N. BAJORIA, LD. SENIOR AUTHORIZED REPRESENTA TIVE APPEARING ON BEHALF OF ASSESSEE AND SHRI NIRAJ KUMAR, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 5. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. LD. AR SUBMITTED A PAPER BOOK RUNNING PAGES FROM 1 TO 204 AND SUBMITTED THAT THE LIABILITY FOR THE LEAVE ENCASHMENT HAS BEE N ACCRUED AND CRYSTALLIZED. THEREFORE, IT IS NOT A PROVISION AT ALL FOR LEAVE E NCASHMENT AND SUBMITTED THAT THE ACCRUAL OF EXPENDITURE UNDER MERCANTILE SYSTEM OF ACCOUNTING IS AN ALLOWABLE EXPENDITURE. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 4 FROM THE AFORESAID DISCUSSION, WE FIND THAT ASSESSE E HAS MADE THE PROVISION FOR THE EXPENSES OF LEAVE ENCASHMENT OF THOSE EMPLO YEES HAVING THE UNUTILIZED LEAVE BALANCE CREDITED IN THEIR RESPECTI VE ACCOUNT. THE ASSESSEE CLAIMED THE DEDUCTION OF THE PROVISION CREATED FOR THE LEAVE ENCASHMENT IN THE BOOKS OF ACCOUNTS. HOWEVER THE AO AND THE LD. CIT(A ) TREATED THE PROVISION FOR LEAVE ENCASHMENT AS CONTINGENT LIABILITY AND TH EREFORE DISALLOWED THE SAME. THE DISPUTE HERE IS THAT THE ASSESSEE CLAIMS THAT THE LIABILITY OF THE EMPLOYEES FOR LEAVE ENCASHMENT HAS BEEN CRYSTALLIZE D AT THE YEAREND BUT HAS NOT FALLEN DUE FOR PAYMENT. THE LIABILITY FOR THE P AYMENT WILL ARISE IN FUTURE WHEN THE EMPLOYEE EXERCISES HIS OPTION FOR THE ENCA SHMENT OF THE SALARY. ON THE OTHER SIDE THE LD. DR CLAIMS THE PROVISION FOR LEAVE ENCASHMENT AS CONTINGENT LIABILITY. CONTINGENT LIABILITY IS POTENTIAL OBLIGATION THAT MAY BE INCURRED DEPENDING ON THE OUTCOME OF A FUTURE EVENT . A CONTINGENT LIABILITY IS ONE WHERE THE OUTCOME OF AN EXISTING SITUATION IS U NCERTAIN, AND THIS UNCERTAINTY WILL BE RESOLVED BY A FUTURE EVENT. FRO M THE ABOVE DISCUSSION WE UNDERSTAND THAT THE LIABILITY IS CERTAIN FOR THE PR OVISION OF THE LEAVE ENCASHMENT. IT IS NOT A CONTINGENT LIABILITY BECAUS E THE EMPLOYEES ARE VERY MUCH ENTITLED FOR GETTING THE LEAVE ENCASHED AS PER THE POLICY OF THE COMPANY. WE FIND FROM THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428 (SC) HAS ALLOWED THIS KIND OF EXPENDIT URE U/S 37(1) OF THE ACT. THE RELEVANT EXTRACT OF THE ORDER IS PR ODUCED BELOW:- SECTION 37(1) OF THE INCOME-TAX ACT, 1961 BUSINE SS EXPENDITURE YEAR IN WHICH DEDUCTIBLE ASSESSMENT YEAR 1978-79 WHETHER IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN ACCOUNT ING YEAR, DEDUCTION SHOULD BE ALLOWED ALTHOUGH LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE BUT WHAT SHOULD BE DEFI NITE IS INCURRING OF LIABILITY HELD YES PROVISION WAS MADE BY ASSESS EE-COMPANY FOR MEETING LIABILITY TOWARDS LEAVE ENCASHMENT PROPORTI ONATE TO ENTITLEMENT EARNED Y EMPLOYEES OF COMPANY SUBJECT TO CEILING ON ACCUMULATION AS APPLICABLE ON RELEVANT DATE WHETHER ASSESSEE WOUL D BE ENTITLED TO DEDUCTION OF SUCH PROVISION OUT OF GROSS RECEIPTS F OR ACCOUNTING YEAR DURING WHICH PROVISION WAS MADE FOR LIABILITY INASM UCH AS LIABILITY WAS NOT A CONTINGENT LIABILITY - HELD, YES. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 5 THE FACT IN THE INSTANT CASE IS SIMILAR TO THE CASE OF BHARAT EARTH MOVERS (SUPRA). NOW FROM THE ABOVE FACTS, IT IS CLEAR THAT LIABILITY TOWARDS LEAVE ENCASHMENT IS A DEFINITE LIABILITY WHICH HAS ACCRUE D AND ARISEN DURING THE YEAR ENDING ON MARCH OF THIS YEAR. HOWEVER, PAYMENT OF T HE SAME DOES NOT FALL DURING THE RELEVANT PREVIOUS YEAR BUT UNDER THE MER CANTILE SYSTEM OF ACCOUNTING THIS EXPENDITURE REQUIRES RECOGNITION IN THE BOOKS OF ACCOUNTS. IN VIEW OF THE ABOVE, WE ALLOW THIS GROUND OF ASSESSEE S APPEAL. 6. NEXT GROUND RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF AO FOR DISALLOWIN G THE LIABILITY OF VOLUNTARY RETIREMENT SCHEME (VRS FOR SHORT) FOR AN AMOUNT OF RS. 6.30 CRORES. DURING THE YEAR ASSESSEE HAS DEBITED A SUM OF RS.13 .20 CRORES ON ACCOUNT OF PROVISIONS OF VRS. DURING THE YEAR 735 EMPLOYEES OP TED FOR VRS. AS A RESULT OF THIS THE LIABILITY ACCRUED TO THE ASSESSEE FOR A N AMOUNT OF RS. 13.20 CRORES DURING THE YEAR. HOWEVER, THE PATTERN FOR THE PAYME NT OF RETIREMENT BENEFIT WAS FIXED IN THREE INSTALLMENTS SPREADING OVER A PE RIOD OF THREE YEARS- APRIL 2000, APRIL 2001, APRIL 2002. SO IT IS CLEAR THAT T HE LIABILITY HAS CRYSTALLIZED TO THE ASSESSEE IN THE ASSESSMENT YEAR 1996-97 BUT NOT FALLING DUE FOR PAYMENT IN THE YEAR UNDER CONSIDERATION. THE AO NOTICED FRO M THE NOTE-10 OF SCHEDULE 20 OF THE BALANCE SHEET THAT IN LAST YEAR THE ASSES SEE WAS ACCOUNTING THE COST OF VRS BASED ON ACTUAL PAYMENTS. DURING THE PREVIOU S YEAR 1995-96 ASSESSEE HAS STARTED TREATING THE TOTAL VRS LIABILI TY AS DEFERRED REVENUE EXPENDITURE. THE PAYMENT OF THE SAME SHALL BE MADE IN THE FUTURE YEARS. ACCORDINGLY THE ASSESSEE WORKED THE VRS LIABILITY A ND CLAIMED THE DEDUCTION OF RS. 13.20 CRORES IN THE YEAR UNDER CONSIDERATION . DURING THE ASSESSMENT PROCEEDINGS, AO INVESTIGATED THE SEVERANCE AGREEMEN T OF THE STAFF WHO OPTED FOR VRS DURING THE YEAR UNDER CONSIDERATION WHICH I S REPRODUCED BELOW:- ON CESSATION OF THE ABOVE MONTHLY PAYMENT, YOU WIL L ALSO BE PAID THE FOLLOWING AMOUNT ON THE DATE AS MENTIONED BELOW:- AMOUNT DATE ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 6 RS.96195/- APR.2000 RS.96195/- APR. 2001 RS.96195/- APR. 2002 THE AFORESAID AMOUNT(S) HAS BEEN CALCULATED ON THE BASIS OF YOUR BASIC WAGE/SALARY AND DEARNESS ALLOWANCE AS OF FEB95. THE ABOVE MENTIONED AMOUNT WILL ACCRUES AND BECOME DUE TO YOU ON THE DATES SHOWN AGAINST THEM AND EACH AMOUNT WILL BE PAID TO YOU ON OR AFTER THE DAY FOLLOWING THE DATE OF ACCRUAL . IT IS EXPRESSLY AGREED BETWEEN THE COMPANY AND YOURSELF THAT YOU WILL HAVE NO RIGHT, I NTEREST OR CLAIM WHATSOEVER IN RESPECT OF ANY OF THESE AMOUNTS UNTIL THE DATE DUE TO YOU. IT SHOULD BE CLEARLY UNDERSTOOD THAT CONSEQUENT UPO N YOUR ACCEPTANCE OF THIS OFFER, THE TENURE OF YOUR EMPLOYMENT WITH U S SHALL CEASE WITH EFFECT FROM 2 APR. 95 THE AO FOUND THAT ON CESSATION OF MONTHLY PAYMENT, THE STAFF WILL BE PAID THE FOLLOWING PAYMENTS ON THE DATES AS MENTIONED BELOW: - AMOUNT DATE RS.96195/- APRIL, 2000 RS.96195/- APRIL, 2001 RS.96195/- APRIL, 2002 FROM THE ABOVE, AO FOUND THAT AS PER THE SEVERANCE AGREEMENT THE LIABILITY FOR THE PAYMENT OF VRS CRYSTALLIZED IN THE ASSESSME NT YEAR 1996-97 BUT THE PAYMENT HAS NOT FALLEN DUE IN THE RELEVANT YEAR. TH E AO FURTHER FOUND THAT DURING THE RELEVANT YEAR THE ACTUAL PAYMENT FOR VRS MADE OF 6,90,77,772/-. THEREFORE, AO HELD THAT PAYMENT OF VRS WHICH HAS AC TUALLY BEEN PAID WILL BE ALLOWED AS AN EXPENSE AND THE BALANCE OF 6,29,22,228/- WILL NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY THE AO HAS DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 7. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO HAS UPHELD THE ACTION OF AO BY OBSERVING THAT AMOUNT PA YABLE IN FUTURE ARE NOT CRYSTALLIZED EXPENDITURE OF THIS YEAR. THE APPELLAN T IS ENTITLED FOR A DEDUCTION OF THE VRS PAYMENTS ON THE BASIS OF PAYMENT IN THE YEAR OF ACTUAL PAYMENT. THE DISALLOWANCE MADE BY THE AO IS CORRECT SINCE TH E UNPAID AMOUNT CLAIMED ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 7 IS IN THE NATURE OF A PROVISION TO MEET THE FUTURE LIABILITY. THE AO'S ACTION IS UPHELD. THIS GROUND OF APPEAL FAILS AND IS REJECTED . AGGRIEVED, ASSESSEE PREFERRED SECOND APPEAL BEFORE US. 8. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR VEHEMENTLY RE LIED ON THE ORDERS OF AUTHORITIES BELOW. LD. AR SUBMITTED THAT AS PER THE SCHEME OF THE COMPANY FOR VRS, THE EMPLOYEES OF THE COMPANY HAVE THE OPTI ON EITHER TO TAKE THE LUMP SUM CONSIDERATION IN ONE GO OR IN TERMS OF VAR IOUS INSTALLMENT OF THE VARIOUS AMOUNT. ONCE THE AGREEMENT FOR SEVERANCE HA S BEEN SIGNED BY THE EMPLOYEE THE LIABILITY FOR THE VRS AMOUNT BECOME CR YSTALLIZED IN THE YEAR OF SIGNING THE AGREEMENT. HENCE THE TIMING OF PAYMENT FOR THE VRS AMOUNT IS NOT RELEVANT. SO THE LIABILITY FOR THE SAME HAS TO BE RECOGNIZED FOR THE SAME AND ASSESSEE PRAYED FOR THE ALLOWABILTY OF THE VRS AMOUNT. IN SUPPORT OF ITS CLAIM ASSESSEE HAS SUBMITTED THE FOLLOWING CASE LAW S:- 1. CIT V. ALIM BAG SALIM BHAI 163 ITR 767 (MP) 2. KALEKHAN MOHAMMED HANIF V. CIT 163 ITR 769 (MP) 3. KEDARNATH JUTE MFG. CO. LTD. V. CIT 82 ITR 363 ( SC) 4. METAL BOX CO. OF INDIA LTD. V. THEIR WORKMEN 73 ITR 53 (SC) 5. ITAT, KOLKATA C BENCH RALLIS INDIA LTD. V.DCIT LD. AR ALSO SUBMITTED THAT THIS TRIBUNALS ORDER IN ASSESSEES OWN CASE IN ITA NO. 851/KOL/2008, 1018/KOL/2007 & 1640/KOL/2008 FOR AYS 2000-01 AND 2001-02, INVOLVING THE EXACTLY SIMILAR FACTS WHERE THE DECISION WAS IN FAVOUR OF ASSESSEE. FROM THE AFORESAID DISCUSSION, WE FIND TH AT DURING THE YEAR 735 EMPLOYEES HAD OPTED FOR VRS AS PER THE SCHEME OF TH E ASSESSEE. ACCORDINGLY THE EXPENSE TO BE MADE TOWARDS VRS TO T HOSE STAFF HAS BECOME DEFINITE EXPENSE. ALTHOUGH THE PAYMENT OF VRS WAS D UE IN FUTURE DATE. THEREFORE THE AO HAS DISALLOWED THE EXPENDITURE AND SAME WAS CONFIRMED BY LD. CIT(A) AS IT WAS NOT DUE FOR PAYMENT IN THE YEA R UNDER CONSIDERATION. HOWEVER, WE FIND THAT THIS TRIBUNAL HAS DECIDED IN ASSESSEES OWN CASE ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 8 WHERE THE EXPENSES FOR VRS WAS ALLOWED AND KEEPING A CONSISTENT VIEW WE REVERSE THE ORDERS OF AUTHORITIES BELOW. HENCE THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. COMING TO REVENUES APPEAL IN ITA NO. 1021/KOL/2007 A.Y. 1996-97 10. FIRST ISSUE RAISED BY REVENUE IS THAT LD. CIT(A ) ERRED IN ALLOWING THE EXCESSIVE DEPRECIATION FOR AN AMOUNT OF 13,77,12,314/-. BEFORE WE COME TO THE SPECIFIC ISSUE RAISED BY REVE NUE IT IS BETTER TO UNDERSTAND THE HISTORY OF THE FACTS OF THE CASE WHI CH GOES AS UNDER:- DURING THE FY 1993-94 RELEVANT TO AY 1994-95 ASSESS EE HAS SOLD TWO UNDERTAKING FOR AN AMOUNT OF 85 CRORES AS GOING CONCERN. THE ASSESSEE CLAIMED IN HIS RETURN OF INCOME FOR THOSE YEARS LON G TERM CAPITAL LOSS UNDER SECTION 48 OF THE ACT. HOWEVER THEN THE AO WAS OF T HE VIEW THAT THERE WAS SALE OF DEPRECIABLE ASSETS AND THEREFORE THE SECTIO N 50 WAS APPLICABLE TO THIS TRANSACTION. SINCE THE ASSESSEE DID NOT PROVIDE THE BREAKUP OF THE SALE CONSIDERATION, HE TREATED THE ENTIRE SALE CONSIDERA TION AS SALE OF DEPRECIABLE ASSETS AND WORKED OUT THE SHORT TERM CAPITAL GAIN U NDER SECTION 50 OF THE ACT. NOW COMING TO THE ISSUE OF RELEVANT YEAR UNDE R CONSIDERATION, THE AO HAS FOLLOWED THE SAME PRACTICE BY REDUCING THE SALE CONSIDERATION OF THE UNDERTAKINGS THEN SOLD IN THE ASSESSMENT YEAR 1994- 95 AND 1995-96 RESPECTIVELY FROM THE WDV OF BLOCK OF ASSETS. THE F ACTS OF THE RELEVANT YEAR ARE THAT DURING THE FY 1993-94 RELEVANT TO AY 1994- 95 ASSESSEE HAS SOLD TWO UNDERTAKING FOR AN AMOUNT OF 85 CRORES AS GOING CONCERN AND THE AO REDUCED THE SAME FROM WRITTEN DOWN VALUE (WDV FOR S HORT) OF BLOCK ASSET AS ON 01.04.1993. DURING THE FY 1993-94 A NEW ASSET AG GREGATING TO 58.68 CRORES WAS ACQUIRED. HOWEVER, THE CLOSING STOCK CLO SING WDV OF THE BLOCK OF ASSET REMAINS AT NIL VALUE AFTER MAKING THE ADJUSTM ENT OF SALE AND PURCHASE OF THE FIXED ASSETS. SO THE OPENING WDV AS ON 01.04.94 WAS TAKEN AS NIL VALUE. DURING THE PREVIOUS YEAR 1994-95, ASSESSEE ACQUIRED ASSET WORTH ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 9 13,26,14,110/-. DURING THE SAME FY ASSESSEE SOLD TH E UNDERTAKING FOR AN AMOUNT OF 3,13,25,013/-. SO WDV AT THE YEAR END AT 10,12,88,096/- ON WHICH A DEPRECIATION FOR AN AMOUNT OF 1,87,35,787/- WAS CLAIMED. HENCE, WDV AS ON 01.04.1995 COMES TO 8,55,62,309/-. DURING THE FY 1995-96 WHICH IS UNDER CONSIDERATION THE ASSESSEE ACQUIRED ASSET OF 31,35,33,795/- AND SOLD ITS UNDERTAKING FOR AN AMOUNT OF 30,28,05,318/- WHICH WAS DEDUCTED FROM WDV OF THE RELEVANT BLOCK. THE WDV COMING AT T HE YEAR END I.E 31.03.1996 AT 9,62,80,786/- ONLY. THE DEPRECIATION ALLOWABLE COME S TO 1,29,37,156/- ON THIS WDV. HOWEVER, ASSESSEE HAS CL AIMED DEPRECIATION OF 15,06,49,470/-, THEREFORE, AO HELD THAT THE EXCESS DEPRECIATION HAS BEEN CLAIMED BY ASSESSEE FOR AN AMOUNT OF 13,77,12,314/-( 15,06,49,470- 1,29,37,156) AND HE DISALLOWED, ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- THE APPELLANT CLAIMED DEPRECIATION OF RS.13.77 CRO RES WHICH IS DISALLOWED BY THE AO. THE AO DISALLOWED THE DEPRECI ATION SINCE THE SALE CONSIDERATION OF THE FERTILIZER AND FIBRE UNIT S, IS REDUCED FROM BLOCK OF ASSETS AND THE BLOCK IS REDUCED TO NIL. HENCE, D EPRECIATION IS DISALLOWED. AS PER THE DECISION OF THE ITAT IN THE CORROMONDAL FERTILIZER, THE WDV OF THE UNIT SOLD, IS TO BE REDU CED FROM BLOCK OF ASSETS. DEPRECIATION IS ALLOWABLE ON THE BALANCE VA LUE OF THE BLOCK OF ASSETS RELATING TO THE BUSINESS UNITS WHICH ARE NOT SOLD AND USED BY THE APPELLANT FOR BUSINESS. IN THE APPELLANTS CASE, TH E WDV OF THE ASSESS BELONGING TO FERTILIZER AND FIBRE DIVISION IS TO BE REDUCED FROM BLOCK OF ASSETS AND DEPRECIATION IS REQUIRED TO BE ALLOWED O N THE ASSETS USED BY THE APPELLANT FOR THE BUSINESS. THE AO IS DIRECTED TO EXAMINE THE DETAILS AND TO ALLOW DEPRECIATION ON THE WDV OF THE ASSETS OTHER THAN THOSE RELATING TO THE BUSINESS SOLD AS GOING CONCERN. THE AO IS DIRECTED TO EXAMINE THE DETAILS AND ALLOW THE DEPRECIATION AS P ER LAW. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR RELIED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). LD. AR SUBMIT TED THAT AUDITED STATEMENT ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 10 SHOWING CLAIM OF DEPRECIATION U/S. 32 OF THE ACT WH ICH IS PLACED ON PAGE 4 OF THE PAPER BOOK AND DEPRECIATION CLAIM IN AUDITED ST ATEMENT WAS AT 15,06,49,470/- ONLY. LD. AR FURTHER SUBMITTED THAT UNDERTAKING WHICH WAS SOLD DURING THE PREVIOUS YEAR AS SPECIFIED BY AO IN HIS ASSESSMENT ORDER WAS GOING CONCERN. THEREFORE THE SALE PROCEED OF THOSE UNDERTAKING WILL NOT BE ADJUSTED AGAINST WDV OF THE RESPECTIVE BLOCK. THERE WAS NO PROVISION UNDER THE INCOME TAX ACT FOR CHARGING THE UNDERTAKING AS SLUM SALE THE CONCEPT OF SLUM SALE HAS BEEN BROUGHT UNDER THE TAX NET BY THE FINANCE ACT, 1999 WITH EFFECT FROM 01.04.2000 AND INSTANT CASE, DOES NOT F ALL UNDER THE CATEGORY OF SLUM SALE. THE LD. AR HAS SUBMITTED THE DECISION OF ITAT IN ASSESSEES OWN CASE, WHICH IS PLACED IN PAPER BOOK ON PAGES 87 TO 101, WHEREIN THE THIS TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSE E. FROM THE ABOVE DISCUSSION, WE FIND THAT AO HAS REDUCED THE WDV OF THE RESPECTIVE BLOCK OUT OF THE SALE PROCEED FROM THE SALE OF UNDERTAKING AS GOING CONCERN. HOWEVER, THE SAME WAS DISALLOWED BY LD. CIT(A). LD. AR OF AS SESSEE RELIED IN ASSESSEES OWN CASE, WHEREIN RELIEF WAS GRANTED IN FAVOUR OF ASSESSEE IN ITA NO. 1020/KOL/2007 DATED 29.02.2008, WHERE IT WAS DECIDED:- THUS, FOR DETERMINING THE CAPITAL GAIN, FROM THE F ULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER OF CAPITAL ASSET, COST OF ACQUISITION OF ASSET AS WELL AS COST OF ANY IMPROVEMENT OF SUCH ASSET IS TO BE REDUCED/. IF COST OF IMPROVEMEN T OF A PARTICULAR ASSET CANNOT BE ASCERTAINED THAN CAPITAL GAIN CANNOT BE C OMPUTED. WHILE TAKING THIS VIEW, WE DERIVE SUPPORT FROM THE DECISI ON OF HONBLE APEX COURT IN THE CASE OF B.C. SRINIVASA SETTY (SUPRA) R ELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. THE ITAT HYDERABAD BENCH IN THE CASE OF COROMANDEL FERTILISERS LTD. ((SUPRA) HELD THAT IT IS NOT POSSIBLE TO DETERMINE THE COST OF IMPROVEMENT OF AN UNDERTAKING , SPECIALLY WHEN UNDERTAKING HAS SO MANY INTANGIBLE ASSET, LIKE TRAD E MARK, LICENCE, GOODWILL ETC. WE ENTIRELY AGREE WITH THE ABOVE CONC LUSION OF THE ITAT, HYDERABAD BENCH. IN VIEW OF ABOVE, WE RESPECTFULLY FOLLOWING THE DECISION OF HYDERABAD BENCH IN THE CASE OF COROMANDEL FERTILISERS LTD. (SUPRA) UPHOLD THE ORDER OF THE LD. CIT(A) AND DISM ISS THE REVENUES APPEAL. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 11 TAKING A CONSISTENT VIEW IN ASSESSEES OWN CASE AND THE DECISION OF ITAT HYDERABAD BENCH IN THE CASE OF COROMANDEL FERTILISE RS (SUPRA), WE CONFIRM THE ORDER OF LD. CIT(A) AND THIS GROUND OF REVENUE S APPEAL IS DISMISSED. 12. NEXT GROUND RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN HOLDING THE CONSIDERATION RECEIVED ON SALE PROCEED OF ASSESSEES AGRO CHEMICAL UNDERTAKING IS NOT LIABLE TO TAX AS S HORT TERM CAPITAL GAIN (STCG FOR SHORT) U/S 50 OF THE ACT OR AS LONG TERM CAPITAL GAINS (LTCG FOR SHORT). DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SO LD ITS AGRO CHEMICAL UNDERTAKING FOR A VALUE OF 30 CRORES ON WHICH ASSESSEE EARNED PROFIT AND SAME WAS DECLARED AS LTCG AFTER ADJUSTING THE BROUG HT FORWARD LOSS UNDER HEAD LTCG. THE AO DURING THE ASSESSMENT PROCEEDIN GS FOUND THAT IN THE EARLIER YEAR, THE ASSESSEE CLAIMED LONG TERM CAPITA L LOSS FROM THE SALE OF UNDERTAKINGS, BUT THEN THE AO DISALLOWED THE SAME A ND ADJUSTED THE SALE PROCEED OF THOSE UNDERTAKINGS AGAINST THE WDV OF TH E RESPECTIVE BLOCK OF ASSET AND IF ANY GAIN AROSE THEN IT WAS WORKED OUT AS SHORT TERM CAPITAL GAIN WITHIN THE PROVISIONS OF SECTION 50 OF THE ACT. THE REFORE, THE AO HELD THE SALE PROCEED SHOULD BE ADJUSTED FROM THE RELEVANT BLOCK OF ASSET AND DEPRECIATION SHOULD BE ALLOWED ON WDV AT THE END OF THE YEAR. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO HAS DISMISSED THE PLEA OF ASSESSEE BY OBSERVING AS UNDER:- 2) CAPITAL GAINS THE APPELLANT DERIVED LONG TERM CAPITAL GAINS OF RS.11.73 CRORES ON THE TRANSFER OF AGRO-CHEMICAL UN DERTAKING. THE AO HELD THAT THE CAPITAL GAIN IS REQUIRED TO BE COMPUT ED AS PER SECTION 50 OF THE IT ACT SINCE THE APPELLANT HAS RECEIVED A LU MPSUM SALE CONSIDERATION FOR THE SALE OF THE BUSINESS. THE AO COMPUTED SHORT TERM CAPITAL GAINS AS PER SECTION 50 FOR THE TRANSFER OF THE AGRO-CHEMICAL UNDERTAKING. THE APPELLANT CONTENDS THAT THE AO ERRED IN NOT ACC EPTING THE APPELLANT S COMPUTATION OF LONG TERM CAPITAL GAIN ON THE TRA NSFER OF AGRO-CHEMICAL UNIT. IT IS CONTENDED THAT THE AO OUGHT TO HAVE CON SIDERED THE TRANSFER OF UNDERTAKING AS A GOING CONCERN FOR SLUMP PRICE. IT IS CONTENDED THAT THE UNDERTAKING IS A CAPITAL ASSET WITHIN THE MEANI NG OF SECTION 2(14). IT ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 12 IS SUBMITTED THAT THE AO OUGHT TO HAVE ACCEPTED THE CAPITAL GAIN COMPUTATION OF THE APPELLANT. IT IS PRAYED THAT THE COMPUTATION BE ACCEPTED. THE APPELLANT SOLD AGRO-CHEMICAL UNDERTAKING FOR A LUMPSUM PRICE OF RS.30 CRORES. THE DETAILS REGARDING THE VALUATION P LACED FOR VARIOUS ASSETS ARE NOT FURNISHED. IN SUCH SLUMP SALE, THE C APITAL GAINS TAX IS NOT LEVIABLE AS PER THE DECISION OF ITAT IN THE CASE OF CORROMONDAL FERTILISERS LTD. V. DCIT (2004) 84 TTJ 370 (HYD). HENCE, IN THE SLUMP SALE OF THE AGRO-CHEMICAL UNDERTAKING AS A GOING CO NCERN, THE LEVY OF CAPITAL GAINS IS NOT EXIGIBLE. THE AO IS DIRECTED N OT TO LEVY THE CAPITAL GAINS ON THE TRANSFER. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR VEH EMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF L D. CIT(A). LD. AR SUBMITTED THAT FOR THE WORKING OF CAPITAL GAIN FROM THE FULL VALUE OF THE SALE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER OF CAPITAL ASSET, COST OF ACQUISITION OF ASSET AS WELL AS COST OF ANY IMPR OVEMENT OF SUCH ASSET IS TO BE REDUCED. IF COST OF IMPROVEMENT OF A PARTICULAR ASSET CANNOT BE ASCERTAINED THAN CAPITAL GAIN CANNOT BE COMPUTED. WHILE TAKING THIS VIEW, HE DERIVE SUPPORT FROM THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF B.C.SRINIVASA SETTY 128 ITR 294 RELIED UPON BY THE HIM. THE ITAT HYDERABAD BENCH IN THE CASE OF COROMANDEL FERTILISERS LTD. 90 ITD 439 (HYD) (SUPRA) HELD THAT IT IS NOT POSSIBLE TO DETERMINE THE COST OF IMPROVEMENT OF AN UNDERTAKING, ESPECIALLY WHEN UNDERTAKING HAS SO MAN Y INTANGIBLE ASSET LIKE TRADE MARK, LICENCE, GOODWILL ETC. WE ENTIRELY AGRE E WITH THE ABOVE CONCLUSION OF THE ITAT HYDERABAD BENCH IN THE CASE OF COROMANDEL FERTILISERS LTD. (SUPRA) HENCE, WE UPHOLD THE ORDER OF LD. CIT(A) AN D DISMISS THE REVENUES APPEAL. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 13 14. NEXT GROUND RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN TREATING THE DEEMED RECOVERY OF 16,88,335/- AS THE ACTUAL RECOVERY THEREBY ERRED IN DELETING THE DEMAND. 15. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT ASSESSEE HAS INCURRED VARIOUS EXPENSES IN RELATION TO GUEST HOUS E ACCOMMODATION SUCH AS MAINTENANCE, RENT AND REPAIR EXPENSES. AGAINST THE ABOVE HEADS OF EXPENSE, ASSESSEE HAS SHOWN CERTAIN DEEMED RECOVERY FOR AN A MOUNT OF 16,88,335/- THIS DEEMED RECOVERY WAS TO BE RECOVERED FROM THE S TAFF OF THE ASSESSEE- COMPANY. AO HELD THAT DEEMED RECOVERY OF 16,88,335/- CANNOT BE TREATED AS ACTUAL RECOVERY, THEREFORE, CANNOT BE ALLOWED AS DE DUCTION. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY AO BY OBSERVING THAT ASSESSEE RECOVERS THE AMOUNT OF 16,88,335/- FROM ITS EMPLOYEES FOR THE USE OF GUEST HOUSE. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US, LD. DR VE HEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF L D. CIT(A). LD. AR HAS SUBMITTED THAT RECOVERY FROM THE EMPLOYEES FOR THE USE OF GUEST HOUSE WAS ALLOWED IN ITS OWN CASE BY THIS TRIBUNAL IN ITA NO. 347/KOL/1997 DATED 18.02.2001. RESPECTFULLY, FOLLOWING THE DECISION OF THIS TRIBUNAL WE DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE. THIS GROUND OF REVENUE S APPEAL IS DISMISSED. 17. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO CROSS-APPEALS OF ASSESSEE AND REVENUE IN ITA NO.2048 & 2355/KOL/2005 FOR A.Y. 1996-97 18. THE GROUND OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- TA NO. 2048/KOL/2005 ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 14 1) THAT THE LD. CIT(A) OUGHT TO HAVE QUASHED THE EN TIRE ORDER DT. 1.3.2005 U/S. 154/254/251/143(1)(A) OF THE IT ACT, WHICH HAS BEEN ISSUED BEYOND THE TIME LIMIT PRESCRIBED UNDER THE P ROVISION OF THE IT ACT NAMELY WITHIN FOUR YEARS FROM THE DATE OF THE ORDER U/S.143(3) DT. 18.3.99 OF IT ACT WHICH IS SOUGHT TO BE AMENDED U/S . 154 OF IT ACT. 2) WITHOUT PREJUDICE TO WHAT HAS BEEN SATED IN (1) ABOVE A) THE LD. CIT(A) WRONGLY INTERPRETED THE PROVISION OF SECTION 80M OF IT ACT IN CONCLUDING THAT THE EXEMPTION FOR DIVIDEN D TO BE ALLOWED SHOULD BE NET OFF DIVIDEND RECEIVED AFTER DEDUCTING TAX AT SOURCE. B) THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT TH E CLAIM MADE BY THE APPELLANT U/S. 80I/80IA IS ONLY FOR THE MANUFACTURI NG ACTIVITIES AND IN ACCORDANCE WITH THE PROVISION OF THE IT ACT. C) THAT THE LD. CIT(A) WRONGLY DEDUCTED THE LOSSES ARISING OUT OF TRADING ACTIVITIES FOR THE PURPOSES OF ALLOWING CLA IM U/S 80I/80IA THEREBY ERRED IN REDUCING THE CLAIM MADE BY THE APP ELLANT. THE GROUND OF APPEAL RAISED BY THE REVENUE ARE AS U NDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DEDUCTING THE AMOUNT OF RS.1,24 ,20,000/- U/S. 80-O. HE OPINED THAT THE CONVERTIBLE FOREIGN EXCHANGE BRO UGHT BY ASSESSEE IN INDIA FOR TECHNICAL KNOWHOW SERVICES WILL BE ELIGIB LE FOR DEDUCTION U/S. 80-O. HERE THE AO WAS JUSTIFIED IN STATING THAT THE RE IS NO FOREIGN EXCHANGE EARNING WHICH THE ASSESSEE HAS CLAIMED ON ACCOUNT OF INCOME FROM COMMISSION ON INDENTING BUSINESS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED I ALLOWING DEDUCTION OF EXCISE AND CUSTOM S DUTY OF RS.559.15 LACS U/S/. 43B. THIS LIABILITY IS A PART OF CLOSING STOCK, EXCISE DUTY PAID AFTER 31.3-96 HAS BEEN DEBITED TO P&L A/C. FOR THE A.YR. 197-98. HENCE, DEDUCTION U/S/ 43B IN RESPECT OF EXCISE DUTY PAID C AN BE ALLOWED ONLY AFTER WITHDRAWING THE AMOUNT DEBITED ON ACCOUNT OF EXCISE DUTY PAYMENT FOR A.YR. 197-98. 19. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO. 2 048/KOL/2005. FIRST ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS TH AT LD. CIT(A) OUGHT TO HAVE QUASHED THE ENTIRE ORDER DATED 11.03.2005 U/S 154/2 54/251/143(1)(A) OF THE ACT WHICH HAVE BEEN ISSUED BEYOND THE TIME-LIMIT PR ESCRIBED UNDER THE PROVISIONS OF THE ACT, NAMELY WITHIN FOUR YEARS FRO M THE DATE OF THE ORDER PASSED U/S 143(3) DATED 18.03.1999 OF THE ACT WHICH IS SOUGHT TO BE AMENDED U/S. 154 OF THE ACT. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 15 20. AT THE OUTSET, LD. AR OF ASSESSEE SUBMITTED THA T THE ASSESSING OFFICER HAS ISSUED INTIMATION U/S. 143(1)(A) OF THE ACT DAT ED 27.03.1997 AND SAME INTIMATION WAS RECTIFIED U/S. 154 OF THE ACT ON 17. 12.1998 WHEREBY CERTAIN ADDITIONS AND DISALLOWANCES WERE MADE IN THE RETURN OF THE INCOME OF THE ASSESSEE. THEREAFTER THE CASE WAS SELECTED UNDER SC RUTINY ASSESSMENT U/S. 143(3) OF THE ACT AND ACCORDINGLY THE ASSESSMENT WA S FRAMED BY PASSING ORDER UNDER SECTION 143(3) OF THE ACT ON 18.03.1999 . WE FIND THAT ONCE THE MATTER HAS BEEN TAKEN UP UNDER SCRUTINY ASSESSMENT BY ISSUING A NOTICE UNDER SECTION 143(2) OF THE ACT THEN THE EARLIER RE CTIFICATION ORDER PASSED UNDER SECTION 154 OF THE ACT HAS NO VALIDITY IN THE EYES OF LAW. ACCORDINGLY THE APPEAL FILED BY THE ASSESSEE TO LD. CIT(A) BECOMES INVALID. SIMILARLY THE APPEAL FILED EITHER BY THE ASSESSEE OR REVENUE AGAI NST THE ORDER OF LD. CIT(A) TO ITAT BECOMES INVALID. ACCORDINGLY THE LD. AR PRA YED FOR QUASHING THE RECTIFICATION ORDER PASSED UNDER SECTION 154 ON DAT ED 17.12.1998, LD. CIT(A) ORDER AND APPEAL TO THE ITAT. IN SUPPORT OF HIS CLA IM, THE LD. AR DREW OUR ATTENTION TO THE PAGE OF 168 OF THE PAPER BOOK, WHE REIN IN ASSESSEES OWN CASE IN ITA NO. 501/KOL/2002 ITAT KOLKATA HAS QUASHED THE PROCEEDINGS OF SECTION 154 OF THE ACT IN PARA-2 OF THIS ORDER, WHI CH REPRODUCED BELOW:- 2. TO ADJUDICATE ON THE CONTROVERSY ARISING OUT OF THE APPEALS, IT IS SUFFICE TO TAKE NOTE OF THE FACT THAT THE IMPUGNED ORDER UNDER S. 154 READ WITH SECTION 143(1)1(A) WAS PASSED AFTER INSUR ANCE OF NOTICE UNDER S. 143(2) OF THE ACT. THE LAW IN THIS MATTER IS FAI RLY SETTLED BY THE DECISION OF THE P & H HIGH COURT IN THE CASE OF CIT V. ARIHANT INDUSTRIES LTD. (255 ITR 458) WHEREIN IT HAS BEEN HELD THAT PROCEED INGS U/S. 154 CANNOT BE INITIATED AFTER ISSUANCE OF NOTICE U/S. 1 43(2). 3. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED WHILE THE REVENUES APPEAL IS DISMISSED. WE UNDERSTAND FROM THE AFORESAID DISCUSSION THAT TH E ISSUE OF NOTICE FOR RECTIFICATION AND PASSING OF ORDERS UNDER SECTION 1 54 TO RECTIFY THE INTIMATION AND TO MAKE ADDITIONS AND DISALLOWANCES TO THE INCO ME INDICATED THEREIN HAS BEEN AGITATED BY TAXPAYERS BEFORE COURTS AND TRIBUN ALS IN VARIOUS CASES. IT HAS BEEN PLEADED THAT WHEN ONCE REGULAR ASSESSMENT IS TAKEN UP FOR SCRUTINY ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 16 AND NOTICE ISSUED UNDER SECTIONS 142 AND 143 OF THE ACT, THE ASSESSING OFFICER HAS NO JURISDICTION OR AUTHORITY TO RECTIFY THE INTIMATION AND TO ENLARGE THE AMOUNT OF INCOME AS WELL AS TAX AND INTEREST SP ECIFIED THEREIN. THE REASON FOR SUCH A PLEA IS THAT THE INTIMATION GETS SUPERSE DED THE MOMENT NOTICE UNDER SECTION 142(1) READ WITH SECTION 143(2) IS IS SUED FOR SCRUTINY ASSESSMENT. THE ANALOGY FOR THIS PLEA IS DRAWN FROM THE FACT THAT A NOTICE FOR REASSESSMENT ISSUED UNDER SECTIONS 147 AND 148 OF T HE INCOME-TAX ACT HAS THE EFFECT OF SUPERSEDING THE ASSESSMENT ALREADY MA DE ON THE ASSESSEE AND THEREBY REMOVING THE FINALITY TO THE ASSESSMENT ALR EADY MADE, WHETHER OR NOT IT IS THE SUBJECT-MATTER OF FURTHER PROCEEDINGS IN APPEAL, REVISION ETC. AND THEREFORE INTIMATION DOES NOT SURVIVE AFTER THE ISS UE OF NOTICES UNDER SECTION 142(1) AND 143(2) WHICH CULMINATE INTO THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) WHICH IS APPEALABLE AND IS ALSO OPEN TO REVISION DEPENDING UPON THE ISSUES INVOLVED AND THE POWER SOUGHT TO BE INVOKED FOR THE PURPOSE OF APPEAL BY THE ASSESSEE OR REVISION OF ASSESSMENT BY THE COMMISSIONER UNDER SECTION 263 OF THE INCOME-TAX ACT. 20.1 WE ARE ALSO MAKING THE REFERENCES TO THE FOLLO WING ORDERS OF THE COURTS ON THE ABOVE STATED SUBJECTS. THE CALCUTTA HIGH COURT IN MODERN FIBOTEX INDIA LTD. VS. DY. CIT (1995) 126 CTR (CAL) 69 : (1995) 212 ITR 496 (CAL) HAS HELD THAT THE ASSESSING OFFICER HAS NO JURISDICTION TO MAKE ANY ADDITION OR DISALLO WANCE TO THE INCOME OF THE ASSESSEE RETURNED BY HIM AND ACKNOWLEDGED/ACCEPTED IN THE INTIMATION ISSUED UNDER SECTION 143(1) BY RESORTING TO ISSUE O F NOTICE UNDER SECTION 154 FOR RECTIFICATION OF MISTAKES AFTER THE REGULAR ASS ESSMENT PROCEEDINGS HAVE COMMENCED BY ISSUE OF NOTICE UNDER SECTION 143(2) A ND THE ASSESSING OFFICER IS SEIZED OF THE ENTIRE FACTS AND ISSUES INVOLVING THE ASSESSEE RELATING TO HIS ASSESSMENT. THE NOTICE AND ORDER FOR RECTIFICATION UNDER SECTION 154 WERE HELD TO BE UNSUSTAINABLE AS THE ASSESSING OFFICER C ANNOT AT THAT STAGE CONSIDER ANY ITEM TO BE PRIMA FACIE INADMISSIBLE FOR THE PURPOSE OF MAKING ADJUSTMENTS TO THE RETURNED INCOME TO ENHANCE THE T AX LIABILITY OF THE ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 17 ASSESSEE. THIS VIEW WAS FOLLOWED AND REITERATED BY THE CALCUTTA HIGH COURT IN COATES OF INDIA LTD. VS. DY. CIT (1995) 128 CTR (CA L) 30 : (1995) 214 ITR 498 (CAL). THE GUJARAT HIGH COURT IN GUJARAT POLY-AVX ELECTRONICS LTD. VS. DY. CIT (1996) 135 CTR (GUJ) 141 : (1996) 222 ITR 140 (GUJ) HAS EXPRESSED THE SAME VIEW AND QUASHED THE ADDITIONS THROUGH RECTIFI CATION PROCEEDINGS TO MODIFY THE INTIMATION ISSUED UNDER SECTION 143(1). 20.2 THE DELHI HIGH COURT IN CIT VS. PUNJAB NATIONAL BANK (2001) 166 CTR (DEL) 340 : (2001) 249 ITR 763 (DEL) HAS ALSO HELD THAT DURING THE PENDENCY OF PROCEEDINGS FOR REGULAR ASSESSMENT AND AFTER THE IS SUE OF NOTICE UNDER SECTION 143(2), THE ASSESSING OFFICER HAS NO JURISD ICTION TO INVOKE HIS POWERS UNDER SECTION 154 OF THE INCOME-TAX ACT AS THE INTI MATION ISSUED UNDER SECTION 143(1)(A) WOULD CEASE TO BE OPERATIVE. THE PUNJAB & HARYANA HIGH COURT IN CIT VS. ARIHANT INDUSTRIES LTD. (2002) 176 CTR (P&H ) 630 : (2002) 255 ITR 458 (P&H) HAS ALSO EXPRESSED THE SAME VIEW AND FURTHER HELD T HAT PARALLEL PROCEEDINGS FOR MAKING THE SAME ADDITIONS AND DISAL LOWANCES THROUGH RECTIFICATION PROCEEDINGS UNDER SECTION 154 AND ASS ESSMENT PROCEEDINGS UNDER SECTION 143 BY THE SAME ASSESSING OFFICER FOR THE SAME ASSESSMENT YEAR AGAINST THE SAME ASSESSEE CANNOT BE PERMITTED NOR CAN BE JUSTIFIED IN LAW. THE PUNJAB & HARYANA HIGH COURT HAS REITERATED THE SAME VIEW AGAIN IN THE RECENT CASE OF CIT VS. HARYANA STATE HANDLOOM & HANDICRAFTS CORPN. LTD. (2011) 336 ITR 699 (P&H). 20.3 THE KARNATAKA HIGH COURT IN CIT VS. MANJIT SINGH SACHDEVA (2009) 310 ITR 357 (KAR) HAS ALSO HELD THAT NO ACTION FOR RECTIFICATION IS PERMISSIBLE TO MODIFY THE INTIMATION AFTER REGULAR ASSESSMENT IS T AKEN UP UNDER SECTION 143(2). THE SUPREME COURT IN CIT VS. GUJARAT ELECTRICITY BOARD (2003) 181 CTR (S C) 28 : (2003) 260 ITR 84 (SC) HAS ALSO MADE IT CLEAR THAT THE INTIMATION ISSUED UNDER SECTION 143(1)(A) CANNOT BE THE SUBJECT-MATTE R OF PROCEEDINGS IN RECTIFICATION UNDER SECTION 154 WHEN ONCE THE REGUL AR ASSESSMENT UNDER ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 18 SECTION 143 IS TAKEN UP AGAINST THE ASSESSEE AS THE INTIMATION WOULD CEASE TO OPERATE ON ASSESSMENT BEING MADE UNDER SECTION 143( 3). TO THE SAME EFFECT IS ALSO THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT VS. PRADESHIYA INDUSTRIAL & INVESTMENT CORPN. OF U.P. LTD. (2010) 191 TAXMAN 377 (ALL). 20.4 FROM THE ABOVE, WE FIND THAT RECTIFICATION ORD ER MADE U/S 154 OF THE ACT HAS BEEN QUASHED AND HELD AS VOID AB INITIO IN SEVERAL CASES . WE ARE ALSO RELYING IN ASSESSEES OWN CASE OF ASSESSEE IN ITA N O. 501/KOL/2002 (SUPRA) FOR THE SAME RELEVANT YEAR. KEEPING IN VIEW OF THIS TRIBUNALS ORDER IN ASSESSEES OWN CASE IN ITA NO. 501/KOL/2002 (SUPRA) WE ALSO QUASH THE ORDER PASSED U/S 154 OF THE ACT BY AO. ACCORDINGLY, THE GROUND RAISED BY ASSESSEE IS ALLOWED. 21. SINCE THE PRINCIPAL ISSUE U/S 154 OF THE ACT IN ASSESSEES APPEAL REGARDING THE VALIDITY OF THE RECTIFICATION ORDER I S ALLOWED IN FAVOUR OF ASSESSEE, THEN THE REMAINING GROUNDS OF ASSESSEES APPEAL DO NOT CALL FOR ANY ADJUDICATION AT THIS STAGE. 22. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. COMING TO REVENUES APPEAL IN ITA NO. 2355/KOL/2005 23. HENCE, WE ALLOW THE ASSESSEES APPEAL IN ITA NO. 2048/KOL/2005 IN PARA 18 BY THIS ORDER IN FAVOUR OF ASSESSEE, THE AP PEAL OF REVENUE DOES NOT REQUIRE ANY ADJUDICATION. 24. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEES APPEAL IN ITA NO. 487/KOL/2000 6 A.Y. 98-99 25. THE ASSESSEE RAISED THE FOLLOWING GROUNDS IN TH IS APPEAL:- ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 19 1) THE LD. CIT(A) HAS ERRED IN NOT ACCEPTING THE A PPELLANTS COMPUTATION OF LONG TERM CAPITAL LOSS OF RS.8,44,04 ,540 ON TRANSFERRED OF NEW FIBRES UNDERTAKING BY HOLDING THAT THE SALE CONSIDERATION IN RESPECT OF NEW FIBRES UNDERTAKING IS TO BE TREATED AND TAXED AS PER PROVISIONS OF SECTION 50 OF THE AC T. 2) THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING THE PR INCIPLES LAID DOWN BY THE SUPREME COURT WITH REGARD TO TAXATION OF CAPIT AL GAINS/LOSS ON TRANSFER OF UNDERTAKING AS A GOING CONCERN FOR A SLUMP PRICE. 3) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE TRA NSFER OF NEW FIBRES UNDERTAKING OF THE APPELLANT CONSTITUTED CAPITAL A SSETS WITHIN THE MEANING OF SECTION 2(14) OF THE IT ACT AND SO OUGHT TO HAVE ACCEPTED YOUR APPELLANTS COMPUTATION OF CAPITAL LOSS ARISIN G FROM TRANSFER OF THIS UNDERTAKING. 4) THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HEREINAFTER REFERRED TO AS CIT(A) HAS ERRED IN DISALLOWING INCO ME-TAX DEPRECIATION CLAIM OF THE APPELLANT AMOUNTING TO RS.15,64,30,803 ON THE WDV OF THE BLOCK OF ASSETS (EXCLUDING THE UNDERTAKINGS TRANSFE RRED) OF THE APPELLANT. 5) THE LD. CIT(A) HAS ERRED IN DISALLOWING PROVISIO N FOR ROYALTY AND TECHNICAL KNOW-HOW FEES AMOUNTING TO RS.18,83,500 O N THE GROUND THAT FROM SUCH PROVISION NO TAX HAS BEEN DEDUCTED AT SOU RCE AND PAID TO THE GOVERNMENT. 6) THE LD. CIT(A) FAILED TO APPRECIATE THAT PAYMENT OF ROYALTY AND TECHNICAL KNOW-HOW FEES AMOUNTING TO RS.18,83,500 H AD NOT BECOME DUE ON AS 31 ST MARCH 1998 AND AS SUCH THE QUESTION OF DEDUCTION O F TAX AT SOURCE AND PAYMENT THEREOF TO THE GOVERNMENT DID NOT ARISE. 7) THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE LIA BILITY WHICH HAS CRYSTALLIZED DURING THE ASSESSMENT YEAR 1998/99 FOR VRS COMPENSATION OF RS.18,50,00,000 8) THE LD. CIT(A) FAILED TO APPRECIATE THAT ON SIGN ING OF THE SEVERANCE AGREEMENTS BY THE EMPLOYEES OPTING FOR VOLUNTARY RE TIREMENT THE LIABILITY TOWARDS PAYMENT OF THE TOTAL COMPENSATION TO SUCH O PTEES ARISES AND THE SAME IS ALLOWABLE IN ACCORDANCE WITH THE SUPREM E COURT DECISION. 9) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ACT THAT PAYMENT OF COMPENSATION WOULD BE MADE IN FUTURE CANNOT NEGATE THE FACT THAT LIABILITY TOWARDS PAYMENT OF THE TOTAL COMPENSATION HAS CRYSTALLIZED DURING THE YEAR. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 20 10) ASSUMING BUT NOT ADMITTING THAT THE VRS COMPENS ATION IS NOT ALLOWABLE ON THE BASIS OF LIABILITY WHICH HAS CRYST ALLIZED AT THE TIME OF SIGNING OF AGREEMENT BY THE EMPLOYEE OPTINING FOR V RS, THE JOINT COMMISSIONER OF INCOME-TAX (JC) HAS ERRED IN NOT AL LOWING AT LEAST THE PAYMENT DURING THE ASSESSMENT YEAR AMOUNTING TO RS. 11,29,56,000 BASED ON CBDT CIRCULAR WRONGLY INTERPRETING THE PRO VISION OF IT ACT WHICH IS BAD IN LAW AND ALSO NOT BINDING ON THE ASS ESSEE. 11) THE LD. CIT(A) ERRED IN NOT ALLOWING 100% DEPRE CIATION ON ELECTRICAL MOTOR CAR IN ACCORDANCE WITH THE CLASSIFICATION UND ER APPENDIX 1 OF IT RULES, 1962. 12) THE LD. CIT(A) ERRED IN ALLOWING ONLY RS.7,62,8 39 U/S. 80HHC OF IT ACT AS AGAINST THE APPS ENTITLEMENT OF RS.83,69,37 1. 13) THE LD. CIT(A) HAS WRONGLY LEVIED INTEREST AMOU NT TO RS.2,44,37,886 UNDER SECTION 234B AND RS.2,23,617 UNDER SECTION 20 1(IA) OF IT ACT. 26. AT THE TIME OF HEARING LD. AR OF ASSESSEE SUBMI TTED THAT HE HAS BEEN INSTRUCTED NOT TO PRESS GROUND NO.1 TO 3, 5, 6 & 11 OF THIS APPEAL. LD. DR RAISED NO OBJECTION REGARDING THE ACTION OF LD. AR FOR NOT PRESSING THESE GROUNDS. HENCE, WE DISMISS THOSE GROUNDS OF ASSESSE ES AS NOT PRESSED. 27. NEXT GROUND RAISED BY ASSSESSEES APPEAL IS THA T LD. CIT(A) HAS ERRED IN DISALLOWING INCOME TAX DEPRECIATION OF 15,64,30,803/- ON THE WDV OF THE BLOCK OF ASSET. DURING COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND T HAT ASSESSEE HAS SOLD CERTAIN UNDERTAKING AS A GOING CONCERN FOR A CERTAI N VALUE IN THE EARLIER YEARS. THE ASSESSEE HAS SHOWN THE SALE PROCEED OF THOSE UN DERTAKINGS AS EITHER CAPITAL GAIN OR LOSS. BUT THE AO WAS NOT SATISFIED WITH THE WORKING OF THE ASSESSEE AND ENQUIRES WHY THE SALE PROCEED OF THE U NDERTAKING SHOULD NOT BE CONSIDERED AS PER THE PROVISION OF SEC. 50 OF THE A CT. THE AO HELD THAT IN CASE ANY DEPRECIABLE ASSET IS SOLD OUT THEN THE SAL E PROCEED ARE REDUCED FROM THE WDV OF ASSET OF THE RESPECTIVE BLOCK AND DEPREC IATION IS CHARGED ON THE CLOSING WDV AS APPEARING AT THE YEAREND IN ASSESSEE S BOOKS OF ACCOUNT. THE THEN AO HAS DISALLOWED THE CLAIM OF THE ASSESSE E IN EARLIER YEARS FOR TAKING THE SALE PROCEEDS AS CAPITAL GAIN. SO, IN TH IS CASE ALSO, AO HAS ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 21 REDUCED THE WDV FROM THE SALE PROCEED OF THE UNDERT AKING AS THE ASSESSEE FAILED TO PROVIDE THE RESPECTIVE VALUE OF THE ASSET S OF THE UNDERTAKING. THEREFORE, AO HELD THAT DEPRECIABLE WILL BE ALLOWED ON THE WDV AS APPEARING AT THE YEAREND AND HE DISALLOWED THE CLAIM OF ASSES SEE UNDER THE HEAD CAPITAL GAIN / LOSS AS A RESULT OF SALE OF UNDERT AKING. THE AO ALSO FOUND THAT SAME PRACTICE WAS FOLLOWED BY REVENUE IN CASE OF AS SESSEE IN EARLIER YEARS. SO, AO HAS DISALLOWED THE SAME AND ADDED TO TOTAL I NCOME OF ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO HAS UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT COMPANY IN RESPECT OF THE ABOVE TWO RELATED MATERIAL GROUND S. SIMILAR ISSUE CAME UP I APPEAL NO. 44/CIT(A)-X/CIR.10/05-06 FOR A SSESSMENT YEAR 1999-2000. IN MY ORDER DATED 1/9/05 THE MATTER WAS ELABORATELY DISCUSSED IN PARA 10, PAGE 5-7. AFTER HAVING DULY C ONSIDERED THE SUBMISSION, MERIT AND FACTS OF THE CASE AT LENGTH, THE ISSUE WAS DECIDED AGAINST THE APPELLANT COMPANY THEREBY UPHOLDING THE AO'S ORDER IN THIS REGARD. THE PRESENT TWO MATERIAL ISSUES BEING ABSOL UTELY IDENTICAL, GROUND NO. 2-5 ARE DISMISSED FOLLOWING THE AFORESAI D ORDER. 28. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASS ESSEE PREFERRED APPEAL BEFORE US. 29. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. DR VEHEMENTLY RELIED ON THE ORDERS OF AUTHORITIES BELOW. BEFORE US, LD. AR SUBMITTED THAT IN THE OWN CASE OF THE ASSESSEE FOR AY 1994-95 IN ITA NO. 1020/KOL/2007 DATED 29.12.2008, WHEREIN IT WAS HELD BY THIS TRIBUNAL AS UNDER:- AFTER READING THE AGREEMENT AS A WHOLE, WE FIND TH AT THE FERTILIZER BUSINESS OF THE ASSESSEE HAS BEEN TRANSFERRED AS A GOING CONCERN TO CCFC. ALL ASSETS AND LIABILITIES RELATING TO FERTIL IZER BUSINESS HAS BEEN TRANSFERRED, ONLY ASSETS EXCLUDED ARE BANK BALANCE AND THE OUTSTANDING INSURANCE CLAIM ON THE DATE OF TRANSFER. MERELY BEC AUSE THESE TWO ASSETS HAVE BEEN EXCLUDED FROM THE ASSETS TRANSFERR ED, IT CANNOT BE SAID THAT IT IS NOT THE TRANSFER OF THE UNDERTAKING AS A GOING CONCERN LAND, BUILDING, PLANT & MACHINERY, RAW MATERIAL, IN DUSTRIAL BECAUSE, TECHNOLOGY, TRADE MARK HAVE BEEN TRANSFERRED TO CCF C. THE EMPLOYEES OF THE ASSESSEE WORKING IN FERTILIZER BUSINESS HAVE ALSO BEEN TAKEN OVER ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 22 BY THE CCFC. ALL CURRENT LIABILITIES RELATING TO FE RTILIZER BECAUSE AS BEEN TAKEN OVER BY CCFC. THE SALE CONSIDERATION OF THE U NDERTAKING AS A WHOLE HAS BEEN FIXED AT A SLUMP PRICE OF RS.70,00 CRORES WITHOUT SPECIFYING ANY SPECIFIC VALUE TO ANY ASSET. THE ASS ETS TRANSFERRED INCLUDES TANGIBLE AS WELL AS INTANGIBLE ASSET. MORE OVER, THE SELLER I.E THE ASSESSEE HAS ALSO AGREED FOR NOT CARRYING ON THE SI MILAR BUSINESS OF MANUFACTURING AND MARKETING OF UREA FERTILIZER FOR A PERIOD OF 10 YEAS. THIS IS EVIDENT FROM PARA 4 OF CHAPTER VIII OF THE AGREEMENT, THE SAME IS REPRODUCED AS UNDER:- ICI FURTHER AGREES FOR A PERIOD OF 10 YEARS FROM T HE TRANSFER DATE NOT TO MANUFACTURE, MARKET, DISTRIBUTE, SELL OR OTH ERWISE DEAL IN INDIA IN UREA FERTILIZER OR AMMONIA FOR CONVERSION INTO UREA EITHER ON ITS OWN ACCOUNT OR THROUGH ANY OF ITS SUBSIDIARI ES AND/OR OTHER GROUP COMPANIES, WITHOUT OBTAINING THE PRIOR WRITTE N CONSENT OF CCFC. THIS CLAUSE IS OF THE NATURE OF NON-COMPETING AGREE MENT FOR WHICH NO SEPARATE CONSIDERATION IS CHARGED BUT IT IS ALSO CO NSIDERED IN THE LUMP SUM CONSIDERATION OF RS.70.00 CRORES. CONSIDERING T HE TOTALITY OF THE ABOVE FACTS, WE ARE OF THE OPINION THAT IT IS A CAS E OF SLUMP SALE OF UNDERTAKING AS A GOING CONCERN AND NOT THE SALE OF DEPRECIABLE ASSETS WITHIN THE MEANING OF SECTION 50 OF THE INCOME TAX ACT. WE, THEREFORE, AGREE WITH THE LD. CIT(A) THAT THE ASSESSING OFFICE R WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 50 OF THE INCOME TAX ACT. WE FIND THAT THIS TRIBUNAL WAS DECIDED IN FAVOUR OF ASSESSEE. SIMILAR ISSUE WAS RAISED IN THE ASSESSMENT YEAR 96-97 IN ITA NO. 850/KOL/2007 WHERE THE RELIEF HAS BEEN GRANTED TO THE ASSESSEE. FROM THE A FORESAID DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR AY 1994-95 IN ITA NO. 1020/KOL/2007 DATED 29.12.2008 AND KEEPING THE CONSTANT VIEW IN THE INSTANT CASE, HENCE, WE ALLOW THIS GROUND OF ASSESSEES APPEAL. 30. NEXT GROUNDS NO. 7 TO 10 RAISED BY ASSESSEE IN THIS APPEAL WHICH REPRODUCED AS UNDER:- 7) THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE LI ABILITY WHICH HAS CRYSTALLIZED DURING THE ASSESSMENT YEAR 1998/99 FOR VRS COMPENSATION OF RS.18,50,00,000/- 8) THE LD. CIT(A) FAILED TO APPRECIATE THAT ON SIGN ING OF THE SEVERANCE AGREEMENTS BY THE EMPLOYEES OPTING FOR VOLUNTARY RE TIREMENT THE LIABILITY ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 23 TOWARDS PAYMENT OF THE TOTAL COMPENSATION TO SUCH O PTEES ARISES AND THE SAME IS ALLOWABLE IN ACCORDANCE WITH THE SUPREM E COURT DECISION. 9) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ACT THAT PAYMENT OF COMPENSATION WOULD BE MADE IN FUTURE CANNOT NEGATE THE FACT THAT LIABILITY TOWARDS PAYMENT OF THE TOTAL COMPENSATION AS CRYSTALLIZED DURING THE YEAR. 10) ASSUMING BUT NOT ADMITTING THAT THE VRS COMPENS ATION IS NOT ALLOWABLE ON THE BASIS OF LIABILITY WHICH HAS CRYST ALLSZED AT THE TIME OF SIGNING OF AGREEMENT BY THE EMPLOYEE OPTIONING FOR VRS, THE JOINT COMMISSIONER OF INCOME-TAX (JC) HAS ERRED IN NOT AL LOWING AT LEAST THE PAYMENT DURING THE ASSESSMENT YEAR AMOUNTING TO RS. 11,29,56,000 BASED ON CBDT CIRCULAR WRONGLY INTERPRETING THE PRO VISION OF IT ACT WHICH IS BAD IN LAW AND ALSO NO BINDING ON THE ASSE SSEE. 31. WE HAVE ALREADY DECIDED THE SIMILAR ISSUE IN ITA NO. 850/KOL/2007 IN PARA-8 BY THIS ORDER AND TAKING A CONSISTENT VIEW AND IN TERMS OF ABOVE, WE ALLOW THESE GROUNDS OF APPEAL RAISED BY ASSESSEE. 32. NEXT GROUND RAISED BY ASSESSEE IN THIS APPEAL I S REPRODUCED BELOW:- 12) THE LD. CIT(A) ERRED IN ALLOWING ONLY RS.7,62, 839/- U/S/. 80HHC OF IT ACT AS AGAINST THE APPELLANTS ENTITLEMENT OF RS .83,69,371/- 33. SINCE THIS GROUND OF ASSESSEES APPEAL IS CONSE QUENTIAL IN NATURE, WE THEREFORE DIRECT THE ASSESSING OFFICER TO GIVE THE EFFECT OF THE DATE OF ORDER IN WORKING OUT THE DEDUCTION AS SPECIFIED UNDER SECTIO N 80HHC AS PER LAW. SO THIS GROUND OF APPEAL DOES NOT REQUIRE ANY ADJUDICA TION. HENCE, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS E. 34. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. COMING TO REVENUES APPEAL IN ITA NO. 507/KOL/2006 FOR A.Y. 98-99 35. ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN HOLDING THE UP-GRADATION COST ON ACCOUNT OF MILLENN IUM UP-GRADATION COST AMOUNTING TO 1.05 CRORES AS REVENUE EXPENDITURE AND ALLOWABLE DE DUCTION U/S. 37(1) OF THE ACT. ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 24 36. DURING THE YEAR ASSESSEE HAS INCURRED AN AMOUNT OF 1.05 CRORES IN CONNECTION WITH Y2K COMPLIANCE IN VARIOUS BUSINESS LOCATION OF THE COMPANY. THE PURPOSE WAS TO HAVE THE CONSTANT FLOW OF DATA A MONG THE DIFFERENT LOCATIONS OF THE BUSINESS. THE ASSESSEE SUBMITTED T HAT TO MAKE THE COMPUTER SYSTEM Y2K COMPLIANT IT WAS NOT NECESSARY TO INTROD UCE FRESH COMPUTERS, AS SUCH, BUT ONLY SOME NEW CHIPS HAD BEEN INTRODUCED I N THE EXISTING COMPUTER SYSTEM. OTHERWISE, THE ENTIRE COMPUTER SYSTEM OF TH E ASSESSEE WOULD HAVE BECOME INEFFECTIVE IN THE NEW MILLENNIUM. HOWEVER, THE AO FOUND THAT AS A RESULT OF THESE CHANGES, THE LIFE OF THE COMPUTER H AS GOT A NEW LEASE OF LIFE OTHERWISE ENTIRE COMPUTER SYSTEM WOULD HAVE BECOME SCRAP. THE AO ALSO NOTED THAT THERE WERE 3 YEARS LEFT FOR THE FOR THE MILLENNIUM YEAR TO COME AND THERE WAS NO IMMEDIATE REQUIREMENT TO INCUR THE UP- GRADATION COST. ACCORDINGLY THE AO HELD THAT EXPENDITURE AMOUNTING TO 1.05 CRORES HAS, IN FACT, INTRODUCED IN NEW COMPUTER EQUIPMENT CAPABLE OF WORKING IN THE NEW MILLENNIUM AND HENCE, THE EXPENSE THUS INCURRED IS TREATED AS CAPITAL EXPENDITURE. THEREFORE, AO DISALLOWED THE SAID SUM AND ADDED IT TO THE TOTAL INCOME OF ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO DELETED THE ADDITION MADE BY AO. 37. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REV ENUE PREFERRED APPEAL BEFORE US. 38. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR VEHEMENTLY RE LIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD.AR RELIED ON THE ORDER OF LD. CIT(A). BEFORE US LD. AR SUBMITTED THAT BUSINESS OF ASSESSEE IS LOCAT ED IN DIFFERENT PLACE OF THE COUNTRY AND MOST OF THE EXPENDITURE INCURRED ON MAK ING THE COMPUTER Y2K COMPLIANT WAS IN THE NATURE OF TRAVELLING AND NO EN DURING BENEFIT IS ARISING FROM MAKING OF EXISTING COMPUTERS OF Y2K COMPLIANT ONLY SOME SMALL CHIPS ARE REQUIRED TO UPGRADE THE SYSTEM. FROM THE ABOVE DISCUSSION, WE FIND THAT ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 25 THE MAJOR EXPENSES WERE INCURRED ON TRAVELLING TO M AKE THE COMPUTER SYSTEM OF ASSESSEE Y2K COMPLIANT AND NO NEW FIXED ASSET WA S PURCHASED BY ASSESSEE. THEREFORE, WE TREAT THE EXPENSES INCURRED TO MAKE COMPUTER SYSTEM Y2K AS REVENUE EXPENDITURE. WE ARE ALSO RELY ING IN ITAT DELHI BENCH IN THE CASE OF ASAHI INDIA 203 TAXMANN 277 (DEL) AND IN THE CASE OF RAYCHEM NATIONAL STOCK EXCHANGE 346 ITR 138 (BOM), WHEREIN SUCH EXPENDITURES WERE HELD AS REVENUE EXPENDITURE. THEREFORE, WE FIN D THAT NO NEW FIXED ASSET IS COMING INTO EXISTENCE OUT OF THE Y2K COMPLIANCE . TAKING A CONSISTENT VIEW OF ITAT DELHI AND MUMBAI BENCHES, IN THE CASE OF ASAHI INDIA CLEOD RUSSELL (SUPRA) AND IN THE CASE OF RAYCHEM NATIONAL STOCK EXCHANGE (SUPRA) WE ARE NOT INCLINED TO INTERFERE IN THE ORDER OF LD. CIT(A ) AND THIS GROUND OF REVENUES APPEAL IS DISMISSED. 39. NEXT GROUND RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S.43B OF THE ACT FOR THE CONTRIBUTION OF 19,26,537/- MADE TOWARDS PF/PENSION. 40. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAS VIOLATED THE PROVISIONS OF U/S 43B OF THE ACT. THE ASSESSEE HAS NOT DEPOSITED PF/EPF/PPF WITHIN THE DUE DATE AS PRESCRI BED UNDER THE RESPECTIVE ACT, THEREFORE AO DISALLOWED THE SAME AND ADDED IT TO THE INCOME OF ASSESSEE. ASSESSEE PREFERRED APPEAL BEFORE LD. CIT( A) WHO HAS DELETED THE ADDITION MADE BY AO. 41. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REV ENUE CAME IN APPEAL BEFORE US. 42. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. DR VEHEMENTLY RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR SUPPORTED THE ORDE R OF LD. CIT(A). BEFORE US, LD. AR DREW OUR ATTENTION IN ASSESSEES OWN CAS E IN ITA NO. 851 & ITA NO.850,1021/KOL/07, 2048,2355/KOL/05 & 487 & 50 7/KOL/06 AYS. 96-97 & 98-99 ICI INDIA LTD. V. DCIT, CIR-10,KOL. PAGE 26 1018/KOL/2007 FOR AY 2000-01 THIS TRIBUNAL HAS DECI DED THIS ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. WE ARE ALSO RELYI NG IN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC), WHEREIN THE PAYMENT MADE FOR PF/EPF/FPF B EFORE FILING INCOME TAX RETURN WILL BE ALLOWED IN THE RELEVANT YEAR. RESPEC TFULLY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) WE APPROVE THE CONCLUSION ARRIVED AT BY LD. CIT(A) AND DECLINE TO INTERFERE. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 43. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 44. IN COMBINE RESULT, APPEALS FILED BY ASSESSEE IN ITA NO. 850/KOL/2007, 2048/KOL/2005 ARE ALLOWED & 487/KOL/2 006 IS PARTLY ALLOWED AND THAT OF REVENUES APPEAL IN ITA NO. 1021/KOL/20 07, 2355/KOL/2005 AND 507/KOL/2006 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 27 /11/2015 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 27/ 1 1 /2015 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE ICI INDIA LTD., 8B, MIDDLETON STREET, KO LKATA-71 2. /REVENUE-ACIT/DCIT, 3 GOVT. PLACE (WEST) KOLKATA-01 3.#-#./ 0 / CONCERNED CIT KOLKATA 4. 0- / CIT (A) KOLKATA 5.2 3455./, ./!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# ./!,